PwC reforms ‘could threaten objective tax advice’, warns Tax Institute
The Tax Institute has raised concerns that the expansion of the promoter penalty laws could capture the provision of independent, objective tax advice.
Tax practitioners are worried that the provision of independent, objective tax advice could be brought within the expanded scope of the promoter penalty regime if reforms to the current framework proceed, according to a recent Tax Institute submission.
Last month, the government released draft legislation containing reforms to the promoter penalty laws as part of its response to the PwC tax scandal.
The proposed legislation would expand the application of the current regime, including the scope of important definitions with the aim of overcoming the difficulties of applying the current provisions.
The Tax Institute noted that the Tax Administration Act 1953 currently provides that an entity is not a promoter of a tax exploitation scheme merely because the entity provides advice about the scheme.
“This carveout relates to subsection 290-50(1) (Promoter of tax exploitation scheme), section 290-60 (Meaning of promoter) and section 290-65 (Meaning of tax exploitation scheme). It does not explicitly relate to conduct described in subsection 290-50(2) (Implementing scheme otherwise than in accordance with the ruling),” the submission said.
The Tax Institute said there is a crucial element of intention on the part of the adviser with respect to the promotion of tax exploitation schemes in that it must be reasonable to conclude that it is implemented, or in the case that it is not implemented, if it were to be implemented it would be done with a sole or dominant purpose of obtaining a tax benefit.
“Intention does not feature as a requirement for the purposes of subsection 290-50(2). In cases arising under subsection 290-50(2), intention only comes into consideration once the matter has progressed to court and the Federal Court can consider exceptions such as reasonable mistake or reasonable precautions under subsection 290-55(1), or where the entity does not know the result of the relevant conduct under subsection 290-55(7),” the Tax Institute said.
The submission said it is important for the law to maintain the exception for advice under subsection n 290-60(2) and that an element of intention to achieve a tax benefit is introduced with regard to subsection 290-50(2).
“This is particularly important given the proposed expansion of the rules,” it said.
It also said that guidance should be provided to demonstrate what advice is for the purposes of the exception, and provide illustrative examples about what would and would not conceivably fall within the scope of these rules.
“We recognise that examples may not be able to cover every circumstance. However, they will help to provide certainty to practitioners, and assurance to taxpayers that they are able to receive sound advice from their advisers without the latter fearing serious ramifications,” it said.
CPA Australia agreed that the proposed promoter penalties appeared “disproportionately large”.
“The penalties in the Corporations Act 2001 and the Competition and Consumer Act 2010 are focused on anti-competitive and restrictive trade practices such as cartels, and protections from harm associated with financial products, financial services and consumer credit,” the accounting body said.
“These significant penalties combined with the expanded scope of the promoter penalty laws create the potential for the imposition of penalties intended to be reserved for very serious market misconduct to any scheme with any benefit (including intangible and unquantifiable benefits) suggested by a tax adviser of any size.”
CPA Australia said the risk is compounded by the joint and several liability of all partners for a contravention by a partner, and for the trustee or all trustees of a trust of these civil penalties, irrespective of whether the partner or the trustee had knowledge of the relevant contravention of the promoter penalty provisions.
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